The University Record, November 26, 1997
Provost Nancy Cantor also briefed the Regents on the changes in approach to budgeting at their meeting last week. Photo by Bob Kalmbach
Editor’s Note: The Nov. 19 issue of the Record incorrectly indicated thatthe text of Provost Nancy Cantor’s presentation to Senate Assembly on VCM would appear in the Dec. 10 issue. It is in this issue, beginning on page 11. In addition, a lengthier document containing more detail, can be found by clicking here.
By Jane R. Elgass
A new approach to budgeting that makes more use of “deliberative decisions than it does of automatic allocations” was unveiled by Provost Nancy Cantor at last week’s Senate Assembly meeting.
Noting that language was one of the weaknesses of the Value-Centered Management (VCM) approach that has been used for the past several years, Cantor will be using the terms “budget system” and “budget model.” In announcing the change, she noted that VCM prompted thinking along very narrow lines, focusing too much on cost. She also said that the VCM approach, through its automatic allocation processes, made the choices as to what would be funded rather than having the community make those decisions and then determine funding levels.
“A good budget system serves, not defines” what people and institutions want to do, the provost said.
The University has a finite set of tangible resources and must determine how to use those resources in service of what the faculty and students want to do. “We must worry about what faculty and students can manage to do at Michigan,” Cantor explained, and to do that we must determine our purposes.
“One way to approach the question of academic purposes or ‘desired doings’ is to consider the commitments that are treasured at Michigan and the aspects of University life that make people want to be here,” the provost said, suggesting three forms of commitments that characterize the U-M:
In detailing reasons for her proposed changes, Cantor noted that VCM’s “great strength” is the incentive it provides for local control, “enabling deans, directors and other administrators who are reasonably close to the substantive actions of students and faculty to make well-informed choices over a wide range of possibilities.”
For example, everyone likes to get as much space as possible. Under a VCM-type approach to budgeting, units are responsible for the costs of their space. Unit heads may decide to forego garnering additional space, using the funds instead to support more faculty and students.
VCM, however, Cantor said, has weaknesses “that may impede our ability to support” the commitments cited earlier. “The fundamental flaw is that too much in the current budget system is allocated automatically, and too much of the authority to make choices and decisions is driven by incentives to enhance local well-being at the actual or potential cost of collaborative activity and attention to the University as a whole.”
Support for valued but less profitable units and activities
Despite a commitment under VCM to use central resources to support units and activities that cannot be self-supporting, “the basic concern remains: under VCM, the ability to be self-supporting is more highly prized than it was under a centralized system, and this has fostered widespread insecurity,” Cantor stated.
To counteract this, Cantor and her staff will work with the schools and colleges to create long-term plans that take into account a unit’s ability to generate outside revenue as well as the prospect of support from the discretionary “provost’s allocation.” The plans, she said, “will reflect the high priority we place on supporting valuable activities that cannot be self-supporting and the high priority we place on giving due consideration to the consequences for the broader University community of units’ activities.”
Incentives for collaboration
Indirect cost recovery (ICR) is assigned to the units where the relevant research is being conducted. Problems arise with respect to collaborative research under VCM when the ICR allocation across units is not straightforward, sometimes resulting in “elaborate treaties to make sure that no one gets taken advantage of financially,” Cantor said.
Cantor is troubled that many faculty feel collaborative work is not worth the effort. “This kind of pre-emptive behavior leads to underestimates of the magnitude of the problems: It is always harder to hear the dog that doesn’t bark.”
Collaborative teaching under VCM presents similar problems. While VCM “makes the connection between teaching and the overall health of the University clear to everyone who has authority over budgets, there is no ideal way to attach tuition revenues to teaching activity,” Cantor explained.
The current system has tuition following registration with the incentive problems similar to those confronting research activities, and units have no incentive to offer courses that might be of interest to students in other units.
“We will do what needs to be done in order to assure that the budget system’s automatic incentives in opposition to collaborative work are countered, in both research and teaching, and to assure that the location of these collaborations be dictated by the intellectual merits, not by automatic rules regarding who gets financial credit for what,” Cantor stated.
Underproduction of public goods
Similar problems arise with respect to activities with campuswide impact, such as museums and libraries, the financial aid system, maintenance of walkways and public safety, among others.
The provost has some control to prevent the “under-provision of public goods,” including allocating resources to libraries and other activities, and using those resources “to reward units that act on behalf of the greater University, and to penalize units that are excessively inwardly-directed,” Cantor explained.
The resources necessary to assure deliberate attention to collaborative work and to University-level public good will be reallocated from other potential uses,” Cantor said. This can be done by reallocations from central service units, by changes in the provost’s allocation or by increasing the University participation tax.
“We are not yet decided on the detailed budgeting practices we will employ,” Cantor said, “in part because we do not yet know how much money will be required to do the job. But we are committed to implementing a budget system that balances the whole of the University with its parts, a goal that will require an increase in the resources available for deliberative allocation.”
Rationalization of central service budgets
Under VCM, the costs of centrally-provided services are allocated via 24 different formulas, which are “inevitably somewhat arbitrary,” Cantor noted.
“What this system has done is focus attention not on questions of right-sizing the missions and associated budgets of each central service unit but, instead, it has locked us all into battle over each and every cost attribution to each and every school and college we have lost the forest for the trees.”
Cantor proposes to remove the cost-attribution part of the budget model and return to a system “in which costs and functions that are centrally controlled are also budgets, evaluated and defended centrally.”
Cantor, along with Robert Kasdin, the new executive vice president and chief financial officer, shortly WILL begin an evaluation of central units and their missions under procedures being developed by the Advisory Committee on University Budgets.
“The quantity, quality and scope of centrally-provided public goods are appropriately determined via a deliberative process,” Cantor stated, “subject to discussion and political influences throughout the University community. Reclaiming formal responsibility for financing these services should help to make clear to everyone where the responsibility lies.”
Cantor noted that the proposed changes “are intended to provide enough resources to support good local, collaborative and public activities and, even more pointedly, to make us all aware that often we need to be creative in reallocating revenues and in offering funding for activities in those spheres that some would fervently like to pursue, though many would be unlikely to support.”